Deutsche Bank: Worst of Global Crisis Yet to Come as Rescue Cash Runs OutWednesday, 18 Apr 2012 The worst may be yet to come in the global financial crisis as the central bank spending that kept defaults low runs out, according to Deutsche Bank AG. Credit-default swap prices imply that four or more European nations may suffer so-called credit events such as having to restructure their debt, strategists led by Jim Reid and Nick Burns said in a note. The Markit iTraxx SovX Western Europe Index of contracts on 15 governments including Spain and Italy jumped 26 percent in the past month as the region’s crisis flared up. “If these implied defaults come vaguely close to being realized then
the next five years of corporate and financial defaults could easily be
worse than the last five relatively calm years,” the analysts in London
said. “Much may eventually depend on how much money-printing can be tolerated as we are very close to being maxed out fiscally.” Default rates stayed in line with historical norms between 2007 and
2011 because of the “unprecedented intervention” of European and U.S.
policy makers, the analysts wrote in the report. Although defaults have been low, recoveries are falling because the public spending that kept non-payments down has failed to spur economic growth, according to the analysts. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. “The LTROs gave us some respite but they don’t appear to have taken the problem away,” Burns said in a phone interview. “At the moment there are no more LTROs on the table.” © Copyright 2012 Bloomberg News. All rights reserved. http://www.bloomberg.com |